Scotland Bankruptcy and Diligence Reforms - Changes to arrestments introduced from 1 April 2008

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27 March 2008

The Bankruptcy and Diligence etc. (Scotland) Act 2006 legislates on personal bankruptcy and diligence. In Scottish law, the term "diligence" means "the process by which persons, lands, or effects are seized for debt".

Part 9 of the Act, set out in sections 199-205, introduces a number of changes to the provisions of the Debtors (Scotland) Act 1987 that affect the operation by employers of the court orders that are distinctive to Scotland, namely

• earnings arrestments (EAs), which are used to recover civil debts, fines and unpaid Council Tax,
  
  
• current maintenance arrestments (CMAs), which are used to deduct payments for maintenance, and
  
  
• conjoined arrestment orders (CAOs), which combine EAs and CMAs when there are more than one of either of them in force against the debtor.

The penalties for non-compliance with the new rules are as already set out in the Debtors (Scotland) Act 1987.

The Regulations have now been made to bring the new measures into force from 1 April 2008. They include some transitional arrangements.

Priorities

Where a debtor is subject to both an EA and a CMA, the former priority of an EA over a CMA no longer applies. Instead, they rank equally in the deductions from the debtor's earnings if the debtor's net earnings are insufficient to allow deduction of the full amounts due under each. This principle of equal sharing contrasts with the "first come, first served" approach used for attachment of earnings orders in England and Wales.

The calculation involves

• reducing the debtor's net earnings by the amount of protected earnings in respect of the CMA, to give an amount N,
  
  
• adding together the EA deduction (amount E) and the CMA deduction (amount C), to give an amount S, and
  
  
• dividing N in the proportions that the E and C have to S.

Example

An employee has net earnings for a 31-day month of £3162. The deductions to be taken are £823 for an EA (amount E) and £2170 (i.e. £70 per day) for a CMA (amount C). The protected earnings for the CMA are £372 (i.e. £12 per day), so there are insufficient earnings left to take both deductions in full.

The previous rules required the EA to be taken first, in full. The earnings that remain for the CMA are £2339, i.e. £3162 - £823. After removing the protected earnings, the amount taken for the CMA is only £1967. As a result, the person entitled to the maintenance payment does not receive the full £2170 due.

Under the new rules, the amount available for the two arrestments, after deducting the protected earnings, is £2790 (amount N), i.e. £3162 - £372. This is split in the proportion that £823 (amount E) and £2170 (amount C) are to £2993, their total (amount S):

EA: (N × E ÷ S) £2790 × 823 ÷ 2993 = £767.18

CMA: (N × C ÷ S) £2790 × 2170 ÷ 2993 = £2022.82

Where deductions are made from a debtor's earnings under a CAO and the amount sent to the sheriff clerk is insufficient to split fully between the creditors, the amount is similarly split proportionately between all of the creditors instead of priority being given to debts and fines.

An employer is entitled, but not required, to apply this procedure in respect of a payday that falls within 7 days of 1 April 2008.

Holiday pay

The previous rules required holiday pay to be added to the employee's normal earnings and the deduction was calculated on the basis of that aggregated payment. Weekly-paid employees particularly could lose much of their holiday pay as a result. In contrast, the procedures for attachment of earnings orders in England and Wales have the effect of spreading the deduction over the period covered by the normal pay and the holiday pay.

The new rules have the effect of treating holiday pay as if it were normal earnings relating to the period during which the debtor is on holiday. On a payday when an employee receives normal earnings and holiday pay,

• a deduction is made from normal earnings as if the holiday pay had not been paid,
  
  
• a deduction is made from each week's holiday pay as if it were being paid as normal earnings,
  
  
• and the results of the two calculations are added together.

Although the calculation differs from those used for attachment of earnings orders in England and Wales, the effect is the same - the deduction is spread over the period covered by the normal earnings and holiday pay.

An employer is entitled, but not required, to apply this procedure in respect of a payday that falls within 7 days of 1 April 2008.

Provision of information

Creditor's duty to provide debt advice and information

The Act imposes a new duty on creditors to provide debtors with debt advice and information packages no earlier than 12 weeks before executing a diligence against the debtor's earnings.

Court's duty to provide information

The judicial officer, when serving an EA schedule or a CMA schedule on an employer, must take all reasonable steps to provide the debtor with a copy of the schedule.

Employer's duty to provide information

The employer must provide the debtor with a copy of the EA or CMA schedule and must notify the debtor of the date on which the first deduction under the EA, CMA or CAO is to be made, together with the amount to be deducted. This requirement does not apply to any EA schedule, CMA schedule or CAO served on the employer before 1 April 2008.

On receiving a new EA or CMA schedule, or a copy of a CAO, on or after 1 April 2008, the employer is required to send, as soon as is reasonably practicable, the following information to the creditor or the sheriff clerk, as appropriate, with a copy to the debtor:

1. how the debtor is paid, i.e. weekly, monthly or otherwise
   
   
2. the date of the debtor's payday next following receipt of the schedule or order
   
   
3. the sum deducted on that payday and the net earnings from which it is so deducted, and
   
   
4. any other information which the Scottish Ministers may, by regulations, prescribe.

Unless the arrestment or order is no longer in force, the employer must send the same information to the creditor or sheriff clerk, with a copy to the debtor, as soon as is reasonably practicable, after

• the later of
  
  
  • 6 April next following receipt of the schedule or order, or
  • the day falling 6 months after receiving the schedule or order, and

• each 6 April thereafter.

The date (b) to be provided on this occasion is the date of the debtor's payday next following the relevant date above.

In the case of EA schedules, CMA schedules and CAOs received by the employer before 1 April 2008, the employer must send the first set of information by not later than 6 October 2008 and subsequent sets of information by each 6 April thereafter.

Examples

• to provide the information, and
  
  
• pay to the creditor an amount equal to twice the deduction that would have been taken at the next payday had the debtor still been employed.

In that situation, the sum paid is offset against the debt and the employer may not recover it from the debtor. There is a right of appeal, on a point of law only, to the sheriff principal.

Creditor's duty to provide information

Unless the arrestment or order is no longer in force, a creditor who receives payments under an EA, CMA or CAO is required to send the following information to the employer or the sheriff clerk, as appropriate:

1. the sum owed by the debtor to the creditor
   
   
2. the amounts received by the creditor by virtue of the arrestment or order, and
   
   
3. the dates of payment of those amounts.

The information must be sent, as soon as is reasonably practicable, after

• the later of
  
  
  • 6 April next following service of the schedule of arrestment or order, or
  • the day falling 6 months after the service of the schedule or order, and

• each 6 April thereafter.

Debtor's duty to provide information

A debtor, on leaving an employment, must inform the creditor or the sheriff clerk, as appropriate, and provide the name and address of any new employer.

Seamen's wages

The existing exemption that prevents deductions under earnings arrestments being made from the earnings of merchant seamen (other than fishermen) is removed. An employer is entitled, but not required, to apply this procedure in respect of a payday that falls within 7 days of 1 April 2008.

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Further information:
Bankruptcy and Diligence etc. (Scotland) Act 2007
The Bankruptcy and Diligence etc. (Scotland) Act 2007 (Commencement No. 3, Savings and Transitionals) Order 2008

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